Work down the income statement from revenue to the bottom line. Enter sales, cost of goods sold, operating expenses, interest and tax to see gross profit, operating income, pre-tax income and net income, each with its margin.
Last updated:
Revenue & direct costs
$
$
Leave 0 if you already have net sales.
$
Materials, direct labor, inventory purchased for resale.
Interest earned, asset-sale gains. Negative for a loss.
Income tax
%
21% is the US federal corporate rate; add state tax if needed.
$
Adds earnings per share.
Enter your values to see the result.
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How to use the Net Income Calculator
Enter revenue: total sales, then any returns, allowances and discounts.
Add direct costs: cost of goods sold for the same period.
Add operating expenses: SG&A, depreciation and amortization, and anything else it costs to run the business.
Enter interest, other income and tax as a rate or as the actual tax expense.
Read net income and each margin, then download the income statement as CSV.
Net income formula, step by step
Net revenue = gross sales − returns, allowances and discounts
Gross profit = net revenue − cost of goods sold
Operating income (EBIT) = gross profit − operating expenses (SG&A, depreciation and amortization, other)
Pre-tax income (EBT) = operating income − interest expense + other income
Net income = pre-tax income − income tax expense
Worked example (the default values): gross sales of $500,000 less $10,000 of returns gives net revenue of $490,000. Subtracting $260,000 COGS leaves gross profit of $230,000 (46.94%). Operating expenses of $140,000 ($120,000 SG&A, $15,000 depreciation, $5,000 other) leave operating income of $90,000. After $8,000 interest and $2,000 other income, pre-tax income is $84,000, and 21% tax of $17,640 leaves net income of $66,360, a net margin of 13.54%.
What goes on each line
Line
Typical items
Common mistake
Cost of goods sold
Inventory sold, raw materials, direct production labor, freight-in
Using purchases instead of the cost of what was actually sold
Operating expenses
Office and sales salaries, rent, utilities, advertising, software, insurance
Including the owner's draws (they are not an expense)
Depreciation & amortization
Spreading the cost of equipment, vehicles, buildings and intangibles over their lives
Expensing the full purchase price of equipment in one period
Interest expense
Interest on loans, credit lines and leases
Including loan principal repayments (not an expense)
Other income / loss
Interest earned, gains or losses on selling assets
Mixing one-off gains into operating revenue
Income tax
Federal, state and local income taxes on profit
Including sales tax collected or payroll taxes (those are not income tax)
Tips for reading net income
Compare margins, not just dollars. Margins let you compare periods of different length or businesses of different size.
Find where profit leaks. If gross margin is healthy but operating margin is thin, overhead is the problem; if gross margin is thin, look at pricing and direct costs.
Net income feeds retained earnings. Whatever is not paid out as dividends or owner distributions is added to retained earnings on the balance sheet.
Use the same period throughout. Mixing a full year of revenue with a quarter of expenses gives a meaningless result.
Frequently asked questions
What is the formula for net income?
Net income = revenue − cost of goods sold − operating expenses − interest expense + other income − income taxes. For example, $490,000 net revenue − $260,000 COGS − $140,000 operating expenses − $8,000 interest + $2,000 other income = $84,000 pre-tax income; after 21% tax ($17,640) net income is $66,360.
What is the difference between gross profit, operating income and net income?
Gross profit subtracts only the cost of goods sold from revenue. Operating income also subtracts the costs of running the business, such as salaries, rent, marketing and depreciation. Net income is the bottom line after interest, other gains or losses and income taxes as well.
How do I calculate net profit margin?
Net profit margin = net income ÷ net revenue × 100. A business with $66,360 net income on $490,000 net revenue has a net margin of about 13.5%, meaning it keeps roughly 13.5 cents of every dollar of sales.
Is net income the same as cash flow?
No. Net income is an accrual accounting measure. It includes non-cash expenses such as depreciation and records sales when earned, not when paid. Cash flow also reflects changes in inventory, receivables and payables, loan repayments and equipment purchases.
Why is there no tax when the result is a loss?
When pre-tax income is negative there is usually no current income tax to pay, so the calculator uses zero tax in rate mode. Losses may create tax benefits such as carryforwards, which depend on your tax rules; use the tax amount option to enter a specific figure.
Is this the same as net income on a paycheck?
No. This calculator measures a business's profit on its income statement. Personal take-home pay after payroll taxes is a different calculation; use a paycheck or salary calculator for that.
What tax rate should I use?
The US federal corporate income tax rate is 21% (since 2018), and most states add their own corporate tax. Pass-through businesses such as sole proprietorships and S corporations are taxed on the owners' personal returns, so many owners use their own estimated rate or leave tax at zero to see pre-tax profit.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.